Man This Sounds Great…Should I Sell?

March 22, 2012 By Jon Griffith Leave a Comment

True, it’s a hot market and there’s not much for sale, but does that mean you should hop on board and list your home for sale? Not necessarily. It’s true that you, the seller, are in control right now, and it’s true that you’ll probably have an offer on the home within days if not hours of listing it for sale. However, it’s also true that we’re heading into a period of price increases based on the activity we’re seeing. How long will this price increase last? Nobody knows. We do know that the annual ebb and flow of the market suggests that the price increases will wane, flattening out towards the summer months, then falling off until this time next year when it all happens again.

What you really need to do is examine your financial situation. If you’re upside down by 60-70% or so, then what are you waiting for. Short sell your home. There’s a tax benefit to doing so as long as you close escrow by December 31st of this year, and if that’s the direction you’re headed anyway, why wait?

If you think you’ll recover enough value that it doesn’t make sense to short sell your home, then stick around a while. Values will not come back to what they were in 2004/5 any time soon, but if you find yourself in a situation where you have 10-20% equity, then you’re on track to an eventual refinance to get you out of a bad loan product, assuming that’s what you’ve got.

My philosophy regarding real estate is to buy and hold, forever. As long as the purchase of your home was a wise financial decision (most were not) then you should be in a great position to eventually pay off your home and turn it into an income property, and you should not sell it.

The choice is up to you. One thing’s for certain. You can definitely sell in today’s market.

Filed Under: Selling A Home Tagged With: control, escrow, home, market

Bonkers

March 22, 2012 By Jon Griffith Leave a Comment

Here we go again. The market is going bonkers, today…not 2 months from now, not 2 months ago…today. Right now. It’s bonkers so much that I’m having an extremely difficult time competing against multiple offers for the clients that I have who are looking to buy.

What’s It Going to Take to Buy A Home in Today’s Market?

That’s the billion dollar question, isn’t it. Here are some statistics updated today at 11:13 AM that might give you an idea of the state of the real estate market in Phoenix and surrounding ares.

There are 14,772 homes on the market. That includes ALL listings in ALL areas covered by the Arizona Regional Multiple Listing Service (ARMLS). In 2005, when bananas were falling out of the sky, we had about 5,000 on the market. In 2009 or so, there were 85,000 homes on the market.

If you know anything about supply and demand you’ll easily be able to identify that we are nowhere near a buyers market. We’re in a seller’s market where the seller calls the shots through the negotiation process for price and repairs.

Of those 14,772 homes, only 11,449 are single family detached homes leaving 3325 condos, town homes, apartment style homes, gemini, etc.

Of the 11,449 single family detached homes, 1,250 require short sale approval, 82 are what some people call “pre-approved” short sales, 1,255 are owned by a bank, 71 are HUD owned homes, leaving a grand total of 8,791 homes for sale.

So what IS it going to take to buy a home?

In a market like this, if you’re serious about buying a home, you’re going to have to let go. Let go of your ideal location. Let go of your ideal criteria. Let go of everything you have in your mind that determines what you will or won’t accept in the house of your dreams. Why? Because you simply don’t have much to choose from right now. There are far more than 11,449 buyers out hunting for a property, and word is spreading fast regarding scarcity. When this happens, there’s no longer a need to create urgency…it creates itself. The moment the national media breaks the news that “you’d better get out there and buy” it will be too late.

You’re going to have to be on the computer night and day waiting for new listings to show up, and when they do, you don’t have the luxury of waiting until the weekend. You’ll find yourself taking paid days off, sick days, or simply skipping out for lunch to hopefully see a home that just came on the market. And for those agents who once had a life? Leave it behind for the time being. You’ll be writing contracts and submitting them at 11PM at night or 2AM in the morning…whatever it takes to get your offer in front of the seller before they accept another.

Money!

If you don’t have your financing in order, forget it. You’ll need to come in with a strong offer, a large earnest deposit, down-payment, and a completed Pre-Qualification form. Got cash? Even better! Can you close quickly? Awesome!

If you’re lucky enough to open escrow on a property, don’t expect the sellers to do any repairs. After all, the ball is in their court. They have a line of people just waiting at the chance to purchase the house with cash, as is, waiving the appraisal and the inspection.

Man This Sounds Great, Should I Sell?

Filed Under: Buying A Home Tagged With: buyers, home, market, property

Big Fat Recovery

March 22, 2012 By Jon Griffith Leave a Comment

Last week I had the pleasure of hearing Michael Orr, founder and creator of the Cromford Report, an extremely comprehensive up to the minute charting system that shows exactly what’s going on in the real estate market. The focus of his presentation today was mostly North Scottsdale, but he touched upon some very clear facts about the real state of Real Estate in Phoenix.

Let me touch upon the basic market cycle before I continue, and I’ll add a simple reminder as well. Mainstream media, while accurate at times, is typically WAY behind where we really are. If you want to know what’s REALLY happening in the market, then you need to tune in to a blog like this one.

The image below is the basic cycle of emotions that people go through in an economic market. We’re all familiar with every part of this chart. Mainstream media places us somewhere between Capitulation and Depression. We in the real estate industry, see things differently. I personally find myself already at Optimism after some of my recent observations.

Here are some key points that Michael made today at the Pinnacle Peak RMS meeting. Many of them involve busting through some of the myths that people believe right now.

Fact #1: Phoenix is a unique market compared to the rest of the nation. We lead along with a few other markets, but we’re not like the rest, so national news does not apply in a general sense. We have to rely upon market data to determine what’s happening.

Fact #2: Urban sprawl creates a unique pattern in this city. The market here moves much like the ripple of a pond, only in reverse, where the outlying areas experience the most movement at the highest speed in both upward and downward trends. Lower valued properties in the sub 250K range experienced the highest decreases in value, and during the coming recovery will experience the greatest and earliest increases in value.

Towns like Paradise Valley continued to increase in value while the outlying cheapest areas fell like rocks.

Fact #3: There is a massive disconnect between what’s actually going on in real estate and what people think is happening in real estate.

Fact #4: Foreclosures exist always, and they grow in line with the population. The number of trustee sales has dramatically fallen compared to 2009 which was the highest year.

Myth #1: There is another wave of foreclosures coming.
Truth: In states where there is actual judicial foreclosure, this may be true because of the backlog of cases that go through the court systems. In Arizona we have Deeds of Trust which require no judicial foreclosure process should a home owner default, therefore the process is much faster. We do not have a huge wave of foreclosures coming.

Myth #2: Shadow Inventory is the 800 lb gorilla in the closet.
Truth: Nobody can agree upon what “shadow inventory” is. In fact, when asked, nobody in the entire meeting believed that prices were declining. Granted, there are areas where prices are weaker, but the long term trend is a bounce-back.

Myth #3: 60% of homes in Phoenix are under-water.
Truth: When asked about the value of a home, two Realtors responded with answers that differed by $175,000 for the same home. The value of the home is determined by what someone will pay for it. It’s impossible to measure the under-water statistic because in order to do so, one needs to know the value of the home, and also what the remaining balance on the mortgage is. Unfortunately, most people have no idea how much their payoff is…including Michael Orr, as he stated, “we all know how much we borrowed, but most of us have no idea what we owe now.” In fact, hardly anyone in the meeting admitted to knowing the balance on their own mortgage. So how could one come to the assessment that any percentage of the valley is under water? In Arcadia, only 11% of the homes are under-water. Other areas of town, such as Southwest Phoenix, experience 80% rates of negative equity. The bottom line is that it’s different in almost every area of town, which is part of the unique nature of our market.

Two forms of Trustee Deeds

There are two measures of trustee sales. There are the trustee sales that are purchased by private buyers at auction, and there are trustee sales that go back to the bank which lead to REO or Bank Owned properties. There are two things to note about these. The first thing is that the number of trustee sale notices overall has decreased. The second thing to notice is that the number of private sales as a percentage over bank recovery is increasing, which means more and more private buyers have entered the market. In fact, in Phoenix, roughly 30% of all homes are paid for because of how much cash has been infused into our market. As a result, the REO market is declining very quickly, starting again at the bottom end of the market and moving up to the higher priced properties.

Foreclosures next year are not going to be a significant enough part of our market for it to be newsworthy.

Unusual

Currently our supply is down dramatically. As of this moment, there are 18,651 single family homes for sale in the Arizona MLS (Search here). Of those, roughly 6,862 are short sales waiting for approvals. That leaves 11,778 homes to choose from. Only 1,113 of those homes will require short sale approval, while 1,164 are either HUD owned or Bank Owned for a total of 2,277 distressed properties on the market.

(Note: A few days have passed since I originally drafted this article. Stay updated by subscribing or bookmark my site so you can stay on top of what’s happening.)

Filed Under: Real Estate News Tagged With: home, market, Trustee Deeds, value

Who Can Afford A Down Payment?

December 27, 2011 By Jon Griffith Leave a Comment

As I’m reading through the latest predictions for the upcoming market conditions, I’m taken aback by one of the statements. In an article written by Jed Kolko, Chief Economist for Trulia.com entitled What the Cyrstal Ball Says about the housing market in 2012, he points out the probability of rental rates increasing, and that it would be a bad thing.

I believe the reason that it is perceived as a bad thing is part of the core of the financial problems we have in this country. The reasoning is this. If rental rates increase, and housing prices decrease, then it creates a great environment for buyers, “but only for prospective buyers who can afford the downpayment and qualify for a mortgage.”

I apologize if I’m completely out of my mind, but what kind of buyer do we want? Do we want to encourage people who cannot afford a home to buy a home? And what about cash buyers? There’s no mention of them, and they do exist, in droves.

As a real estate agent who doesn’t believe borrowing money is part of a sound financial plan, I have a hard time with the topic of mortgages. There are great deals out there, but we shouldn’t be waiting until someone wants to take advantage of a good deal to counsel them about the principles of money…mainly saving, which is what’s required to build up a down payment. If you haven’t figured that out by now, then you might want to consider re-signing your lease until you do. If you’re thinking about buying a house, know that a down payment is going to be part of the equation. Plan your life around a 20% down payment and your long term costs will be much less than if you go with a more “creative” financing plan.

As my financial coach Dave Ramsey always says, “creative usually means too broke to buy a house.”

Filed Under: Blah Blah Economy Tagged With: buyers, housing, market, mortgage

Short Sale Basics Part One: Market Value

December 13, 2011 By Jon Griffith Leave a Comment

(This is part 1 of 5 of the short series entitled Short Sale Basics)

At its core, a short sale is a standard real estate transaction. A house is listed for sale at a price comparable to the surrounding market activity, including sold properties, competing properties for sale, and properties under contract. A buyer makes an offer based on their personal assessment of the surrounding market. Until that offer is accepted by the seller and subsequently closed, a market value is subjective.

Market Value

The market moves. It’s alive. It changes from moment to moment. Our culture, driven by consumerism, is so tied to the idea that a product’s price is set in stone that the value of an item really does remain in the hands of the company or person selling it. That’s why I so often hear people who call me off of my signs ask me “what a house is selling for.”

This is simply not true.

Price is determined by so many combinations of factors that no single entity is responsible for the asking price and you as the consumer don’t have to pay what someone asks just because they put a sticker on it. Every product we buy and sell, including a home, is negotiable, and the value of a traded good is only worth what it was last paid for at the moment the transaction took place. Only moments later, all of the dynamics that led to a certain price being paid for a good or service change and the process of valuation begins all over again. That is why products that are traded more than once never have the same “most recent” price.

Market value is subjective.

Filed Under: Real Estate Basics, Short Sales Tagged With: home, market, Market Value, Short Sale Basics

Guess What!? It’s a Seller’s Market…

May 9, 2011 By Jon Griffith Leave a Comment

You may have heard the terms “Seller’s Market” and “Buyers Market.” Over the past few years, we’ve heard the term “Buyer’s Market” far more than we have the other. These terms are basically how we describe who has more power to control the price of the home. It’s simple supply and demand.

When it’s a Buyer’s Market, the buyer has more control because there are more homes, or a surplus of homes on the market. It usually results in homes dropping in price to meet the buyer’s expectations.

When we’re in a Seller’s market, it means that the supply has been reduced and there are more buyers than there are homes for sale. When this happens, homes tend to sell faster, and buyers tend to find themselves competing for properties.

Absorption rate plays a huge role in the type of market we’re in. Absorption rate is calculated by dividing the number of homes sold in the past 30 days into the number of homes on the market. When the absorption rate falls between 3 and 6 months, the market is fairly balanced between buyers and sellers. If this number goes over 6, we’ll find ourselves in a buyer’s market, and when it’s below 3, a seller’s market.

Today is May 9th, 2011. In the past 30 days, 7,600 single family detached homes have been sold as evidenced by the Arizona MLS data. There are currently 20,970 on the market. So, today the absorption rate is roughly 2.75 months.

In other words, it’s a Seller’s Market.

Filed Under: Buying A Home Tagged With: absorption, buyer, buyers, market

The Right Time to Buy a Home May Not Be In A Down Market

August 25, 2010 By Jon Griffith 1 Comment

It’s all dependent upon the interpretation of the term, “The Right Time to Buy.”

For a pushy sales person, the right time for you to buy a home may be RIGHT NOW! TODAY! Don’t WAIT…can’t you smell the steak on this grill? But the truth of the matter is, the right time for you to buy a home is when you are able to, financially. There aren’t any programs, tax credits, special incentives, or “great deals” that should make you feel as though you’re losing out if you don’t buy, especially when you’re not ready to handle the responsibilities associated with owning a home.

That includes when the market is down. In fact, I would submit that the fluctuation in the market is going to affect only a few things for the buyer who is ready, and those things are location, location, location. True, a down market (or a market where real estate is on sale, like it is now) it would be the best time to buy for someone who is ready to buy. But, it may not be until the market has climbed a bit before you’re prepared.

Your finances should be in order before you consider such a commitment. You should have 6 months of reserves based on the prospective home’s costs to survive if you experience an emergency. You need health insurance. You need to be generating income. You need to budget and plan your retirement and your children’s college funds. AND you need to be in the mindset that you won’t enter into a purchase contract on a home until you can put 20% down and take out no more than a 15-Year fixed rate mortgage that carries no more of a payment than 25% of your net take-home pay. You need to have all of your debt paid off, have no car payments, no credit card balances, and no student loans. If you’re about to get married, wait until you’ve been married for a year before buying, even if you’re financially ready.

Sound like an unreasonable proposition? It’s very possible, provided you’ve made some good decisions along the way. If you haven’t, and you’ve gotten yourself deeply in debt, don’t buy a house yet. Wait. I don’t care how “good of a deal” it is, and how “down” the market is. You may not be ready to buy that house until the market is up, in which case, you’ll buy something a bit smaller, perhaps in a different location, but with the goal of owning the home free and clear as fast as possible so that you can pursue the next venture.

The right time to buy a home is when you have a plan that will lead you to not having payments on it.

Filed Under: Helpful Hints, Real Estate Basics, Real Estate Finances Tagged With: debt, home, house, market

When the Short Sale Offer is Too Low

July 12, 2010 By Jon Griffith Leave a Comment

Upon receiving an offer from a seller, the seller’s lender sends someone out to provide a price opinion of the property’s value. This number is stacked against the current offer, and if it falls within a certain range, the bank will approve the file.

In our current Phoenix market, we’re expecting another round of defaults due to the extensive number of Option ARM mortgage products that are resetting, which means the supply will increase again. Any time you increase supply, the median price falls.

As we see more inventory hitting the market, it’s going to be more and more difficult to transition from our recent and relatively flat price trend where speculation of price increases have fueled false hope into a time where prices are expected to continue to fall.

As a result, broker price opinions (BPO) which the banks use to determine if the short sale offer is enough, may become more and more inaccurate.

When the offer is actually too low

So what happens if we run comparable analysis in a neighborhood and we determine that the BPO performed on that property is probably right on, and the offer isn’t high enough?

The banks don’t provide their BPO value directly to us unless we can wrangle it out of them. The BPO agent cannot disclose the amount, so we come to a point where it’s the lender’s word against ours (unless we analyze the market and come up with the same information.) If we find that our BPO matches the bank’s evaluation, it’s likely that an experienced agent was used to provide the BPO, in which case we can trust that the bank is telling us what to expect.

The problem we have is that we have to go back to the buyer’s agent and tell them that the price is too low, and if their client wants the property, they’re going to have to raise the price. There’s nothing in writing substantiating these requests. The buyer’s agent must use his or her expertise to provide their client with their own broker price opinion of value to show the buyer that we aren’t just making up numbers, and the increase price is warranted.

Sometimes this isn’t the case, and the seller may be trying to reduce their deficiency with the lender. What I’ve found in the short sale market is that homes really end up finding a sales price closest to a fair market value than they do being over priced or a “steal.”

The whole deal hinges on the BPO, and sometimes when the offer is too low, it actually does need to be increased.

Filed Under: Short Sales Tagged With: BPO, market, property, value